In what way did Sony ever think they could compete with Nintendo in the handheld market?

[MikeRox]

2DS is the first step in open acknowledging the stereoscopic 3D isn't the "big thing" they wanted. They also need a way of boosting the processing power of the console, this would effectively double what they have to play with for visuals.

I expect this to open the door for games not using stereoscopic 3D and thus being able to push more polygons and effects around the screen at once.

I wonder if hardware limitations are the reason the King of Fighters spiritual successor was axed on 3DS and moved to Vita and also the absence of the new Level 5 game from 3DS when it's on practically everything else.